The Irish Presidency has drawn up a working docment on reform of the Common Agricultural Policy (CAP) and multilateral trade talks for the informal meeting of EU Agriculture Ministers meeting from 9 to 11 May in Killarney (see EUROPE of 12 May, p.11). The EU Council Presidency text is published in full in our EUROPE/Documents series in French, English and German.
CAP Reform and Trade Concessions: how best to communicate them
Introduction
The extent of the reforms of its agriculture policy carried out by the EU since the early 1990s has been remarkable. Similarly, the preferential treatment for developing countries in relation to market access has been extensive. Yet, in the negotiations on the Doha Development Round, the EU has found itself continually subjected to more and more demands. This suggests a failure to bring home to our WTO partners the significance of the reforms of our domestic support arrangements and the value, or potential value, of the trade concessions that we have made.
I. CAP Reform
In the 1990s, there have been two major reforms of the CAP:
In 1992, there was a major switch from market support to direct support for farmers' incomes, the latter linked to production limitations
In 1999, the Agenda 2000 agreement significantly intensified the 1992 reforms.
As a result of these reforms, the EU's market price support, the most trade-distorting form of support, accounted for 85% of total support in the 1980s, but fell to 50% before the June 2003 reform. Export subsidies had fallen from 25% of the value of farm exports in 1992 to 5.2% in 2001 and in absolute terms from €10 billion to €2.8 billion a year. All these levels of support will fall further following the CAP Reform of 2003 which will make EU support to agriculture even more trade friendly.
An indicator of this steadily decreasing reliance on trade-distorting support is the shrinking share of EU agricultural exports on the world market for key agricultural commodities over the past ten years (wheat: 30% in 1992 to 7.5% in 2002, beef: 27% in 1994 to 5% in 2002, pigmeat: 62% in 1992 to 43% in 2002). The EU has clearly been more active than other WTO members in disciplining trade-distorting support in the area of export competition under the Uruguay Round through implementation of its transparent reduction commitments on export subsidies.
The changes in the form of support agreed in Luxembourg in June 2003 marked a further significant step in the reform process. As a result of those changes, it is estimated that a minimum of 75% of Blue Box supports will be eligible for the minimally distorting or non-distorting Green Box category. The eventual proportion could be higher than this minimum as the implementing decisions by the Member States have, in general, involved higher levels of decoupling than the minimum. The reform of the tobacco, cotton, olive oil and hops regimes will increase that proportion even further.
The fact that the EU is still under pressure in the Doha Development Round is difficult to understand in the light of the sweeping reforms described above. It would seem that greater efforts towards better communication are needed as to what benefits CAP reform really involves for international agricultural trade. If the EU does not succeed in this, there is a danger that the future of the EU's agricultural policy will be determined, not by the Council of Ministers but by external forces, as WTO partners continue to demand further changes from the EU. We have to analyse why this situation has come about and consider how it can be addressed.
II. Trade Concessions
Agriculture-based development strategies play a key role in helping developing countries, and particularly the least developed countries, to achieve the Millennium Development Goals which call for reducing the proportion of people living on less than $1 a day to half the 1990 level by 2015, as well as halving the proportion of people who suffer from hunger between 1990 and 2015.
Agricultural growth and rural development can make a major contribution to lifting the poor out of poverty and to the eradication of hunger. Of course, agricultural growth on its own does not guarantee poverty reduction. Growth must generate employment on farms and in the rural non-farm sector.
The markets for increased agricultural production in developing countries will partly be found at home, but growth in international markets will be crucial if agricultural development targets are to be met. In this context, both developed and the more advanced developing countries have a part to play. More than half of developing country agricultural exports now go to other developing countries, and this share has been growing over time.
As the world's biggest importer of agricultural products the EU has been conscious of its responsibilities in this regard. In addition to changes in domestic supports therefore, the EU has also developed its agricultural trade policy so as to provide preferential access to developing country exporters under a variety of schemes. These include:
The Generalised System of Preferences (GSP), the most broadly based preferential access scheme, open to virtually all developing countries.
Of the 10,500 tariff lines involved, the basic GSP scheme covers about 7,000, of which 3,300 are classified as non-sensitive and 3,700 as sensitive. For non-sensitive products, duty-free access is granted. For sensitive products, the ad valorem duty is reduced by 3.5 percentage points and specific duties are reduced by 30%. Additional preferences are available under special incentive arrangements for the protection of labour rights and the environment, and to combat drug production and trafficking.
Additional preferences under the Cotonou Agreement for the African, Caribbean and Pacific (ACP) States.
This Agreement grants more extensive coverage particularly for agricultural products. Tropical products which do not compete with European products enter duty-free, while many temperate-zone products, including products covered by the CAP, receive either an exemption or reduction of customs duties. Some products are handled under special protocols (beef, sugar, bananas).
The Everything But Arms arrangements which grant duty-free access to imports of all products from the 49 least developed countries (LDCs), except arms and munitions, without any quantitative restrictions.
This scheme extended preferential access to a further 919 tariff lines which were not included in either the basic GSP or the ACP Agreement. The great majority of these products are agricultural products, including certain meat products, vegetables, fruits, wines and prepared foodstuffs. Only imports of fresh bananas, rice and sugar are not fully liberalised immediately. Duties on products will be gradually reduced until duty free access will be granted for bananas in January 2006, for sugar in July 2009 and for rice in September 2009. In the meantime, there will be annually increasing duty-free tariff quotas for rice and sugar.
Other bilateral trade agreements in which preferential market access is granted to other countries.
These include the agreements with the Mediterranean countries and with South Africa, Chile and Mexico. Finally, WTO tariff rate quotas allow limited quantities of imports to the EU at preferential in-quota tariff rates (generally between 30%-40% of the MFN rate).
As a result of the above arrangements, the EU:
Is the world's largest importer of agricultural products
Is the world's largest importer of agricultural products from developing countries and in fact imports more of such goods than the US, Japan, Canada, Australia and New Zealand together
Takes about 85% of Africa's and 45% of Latin America's agricultural exports
Is a net importer of agricultural products.
Total EU imports of agricultural and agri-food products increased from €55.5 billion in 1997 to €62.3 billion in 2002. The relative importance of different suppliers in total agri-food imports is shown in the table below.
- For the table, please refer to the paper version -
The data clearly show the effectiveness of the EU preferences: Imports from countries with preferences were increasing considerably whereas countries with which the EU has no preferences were at best stagnating. The new Member States show an exceptional rate of growth - obviously a special case. A significant feature of the table is the rate of growth in imports from Mercosur which outstripped all other groups with the exception of the new Member States and which leaves Mercosur as the single most important group.
This overall positive impact of EU preferences does not mean that the effectiveness of preferences could not be improved further. Many developing countries continue to have difficulty in taking full advantage of these opportunities. These can broadly be divided into policy-induced constraints (e.g. overall trade and macro-economic policies) and structural constraints such as a higher dependence on a limited number of export commodities; weak technological capacities; inadequate legal and regulatory institutional frameworks; limited access of farmers to credit; and inadequate transport, storage and marketing infrastructure. Such challenges need to be addressed effectively if developing countries are to fully reap the benefits of EU preferences.
However, there is also evidence that improved communication could make an important contribution to boosting the effectiveness of EU preferences. Communication weakness occurs at two levels, at least.
First, there is action needed at the level of developing countries in communicating the market opportunities that these preferences represent to their producers and exporters. Here, the EU has responded and indeed is the lead provider of trade-related assistance, providing more than €2 billion in trade assistance for developing countries in the last three years.
Second, civil society could play a vital role in promoting the use of trade preferences in Developing Countries. There does not always seem to be sufficient understanding as to what the full benefits of the aid provided for developing countries through trade preferences and trade-related assistance are. This was evidenced in the approach adopted by NGOs at Cancun.
Conclusion
Improvements in communication, at these and other levels, would bring considerable benefits in terms of:
better understanding of CAP reforms in general
better realisation of potential trade benefits available to developing countries
better understanding of motivation, resulting in improved prospects for international negotiations including the Doha Development Round.
Acceptance of the need to improve communications raises the following questions among others:
What can be done to improve communications?
Is there a need to devise a deliberate strategy to be implemented over a specific period?
Is there a role for the Member State in addition to the Commission?
These issues are to a certain extent outside the immediate competence of the Agriculture Council. However, they carry considerable implications in the agricultural sphere. It is therefore important that Agriculture Ministers should discuss these issues and make an input into their resolution.